Would India have grown faster if it wasn't a democracy?

The India growth story, as it was originally envisaged to be, is more or less over. The time when 8-9 percent growth was taken for a given are gone. The gross domestic product (GDP) for the period July-September 2012, grew by 5.3 percent.

Further, what is true about India, is also true about China. As Ruchir Sharma, head of Emerging Market Equities and Global Macro at Morgan Stanley Investment Management, told me in a recent interaction: "As far as China was concerned the growth expectations were too high out of China.

People kept expecting China to grow at 9-10 percent. But there has been a reset of expectations. This year the growth rate is going to be 7.5 percent officially. Some suggestions have been made that the actual number would be lower than that if you look at the corresponding data."

As was the case in the past, expectations are that China will continue to grow at a much faster rate than India. To me this raises the question whether countries with authoritarian governments, or countries with lower levels of democracy or even countries run by dictators, do better during the initial few decades of economic growth than countries which are democracies?

Or to put it simply, is India's democratic form of government slowing down its economic growth? This is a question that makes for engaging discussion in the business circles of Mumbai and the power circles of Delhi. Would we have done better if we were more like China or Singapore, than the way we actually are, is a question which is often asked?

Vivek Dehejia and Rupa Subramanya discuss this question in some detail in their new book Indianomix - Making Sense of Modern India (Random House India, Rs 399).

They write: "When you look back on the history of the twentieth century - in fact through human history - you notice periods of very high economic growth are associated with autocratic, not democratic regimes. Just think of Chile under the dictatorship of Augusto Pinochet or the 'miracle' economies of East Asia - Hong Kong, Singapore, South Korea, and Taiwan. Starting in the 1960s these four economies went from being poor to being rich in just over a generation. The first one was a British colony, the second an oligarchy, and the latter two essentially one-party states. It's true that Chile, Taiwan and South Korea democratised - but that was after they'd experienced a generation of rapid growth, not before."

 Would India have grown faster if it wasnt a democracy?

ndia's democratic form of government may impact its economic growth to some extent but it saves us from other problems as well AFP

As Dehejia told me in an earlier interview: "You need to have some sort of political control, you cannot have a free for all, and get marshalling of resources and savings rate and investment rate that high growth demands." And this is more possible in an authoritarian regime than in a democracy.

The same stands true for China now.

It has had a generation of fast economic growth without any democracy. The country is ruled by one party, the Chinese Communist Party (CCP). As Richard McGregor, the author of The Party: The Secret World of China's Communist Rulers told me in an earlier interview, "The CCP is basically a political machine, as well as being a permanent governing party. As a political machine, it does not consider that its internal mechanisms should be open to public view. The top leaders are unveiled to the country at the end of five years and very little is revealed in the process. After the 2007 Congress, the nine men - and they are all men - walk out onto the stage, all wearing dark suits and all but one wearing a red tie; they all displayed slick, jet-black pompadours (a style of haircut), a product of the uniform addiction to regular hair dyeing of senior Chinese politicians; and they had all worked their way up through the same system for all their lives." Conformity is the name of the game.

The Western nations which grew at a very fast rate towards the end of the 19th century and early 20th century also had very little democracy back then. As Dehejia and Subramanya point out, "All of the rich countries of the West achieved rapid growth and economic development when they weren't democracies. Just think of Britain during the Industrial Revolution. While it's true that Britain was a parliamentary democracy it came with one catch, the fact that most people couldn't vote. Franchise restrictions based on property ownership meant that the poor and the lower middle class were prevented from voting."

The same stands true about the United States of America as well, the biggest economy in the world right now. "Britain was really an oligarchy, not a democracy, and so too was the US and every other Western country that industrialised and got rich.. The US, for example, legally enfranchised the African-Americans after their emancipation from slavery, but this was 'offset' by franchise restrictions that meant most southern blacks couldn't participate in the political process until the civil rights movement of the 1960s. And let's not forget that women didn't get the vote in all of these Wstern countries till very late - well into the twentieth century in many cases," the authors point out.

India, on the other hand, was different. Quite different. As Dehejia told me in an earlier interview: "The India story is unique. We are the only large emerging economy to have emerged as a fully-fledged democracy the moment we were born as a post-colonial state and that is an incredibly daring thing to do."

This despite the fact that the Constituent Assembly which drafted the Indian Constitution had been elected under a very limited franchise by 5 to 10 percent of the Indians at the top of the social (pyramid)... So, has Indian economic growth suffered because we are a democracy? Dehejia and Subramanya point out the research of William Easterly, an economics professor at New York University. "The historical data on growth over time in many different countries that Easterly has analysed show that if you're a fast growing country then there's a 90 percent chance that you're an autocracy. The problem is that you should be asking the reverse question: if you're an autocracy, what's the chance that you'll be a growth success? The answer to that question is an underwhelming 10 percent?"

What that means is that fast-growing countries are almost inevitably autocracies but not all autocracies are fast-growing countries. An excellent recent example is Zimbabwe under Robert Mugabe who now functions like a dictator. "What was once a bread basket has now become a basket case," write the authors. The continent of Africa is full of authoritarian regimes which have made a mess of their respective economies.

Closer to home under General Zia-Ul-Haq, Pakistan first turned into an Islamic state and now has turned into a full fledged terrorist state. The horrors that Pol Pot perpetuated as the dictator of Cambodia are well known.

And the biggest example of an authoritarian regime gone wrong was Adolf Hitler. Hitler first rode to power on popular discontent and then used a lot of Keynesian economics (which John Maynard Keynes was still in the process of formulating) to create economic growth by building roads and then lead his country into a disastrous World War.

So yes, fast growing countries are authoritarian regimes but, as explained above, things can go terribly wrong under these regimes as well. Hence, we really don't know which way authoritarian regimes go will go - towards economic growth or towards social disaster.

But then why does the myth of authoritarian regimes always creating economic growth prevail? This is because of what is known as the 'availability heuristic'. "This refers to the fact that human beings tend to attach too high a probability to an event that's very vivid in our minds. A classic example is natural disasters like earthquakes and tornadoes. Because they're splashed all over the news on the rare occasions they do occur, people always think they're far more likely than they really are," write the authors.

"Compiling data from news stories in the New York Times from 1960 to 2008, Easterly shows that successful autocracies are heavily over-reported compared to failed autocracies. Compared to a little under 6,000 stories on failed autocracies and about 15,000 on those in the middle, there were a staggering number of stories - more than 40,000 on autocratic successes. So if China has been on your mind rather than Zimbabwe you're not entirely to blame," they add.

Hence, India's democratic form of government may impact its economic growth to some extent but it saves us from other problems as well. "What the data do show is that autocracies have many more highs and lows than democracies: they tend to be spectacularly successful or unmitigated disasters. Democracies generally are found somewhere in the middle. India, for example, hasn't yet achieved Chinese-style double digit growth rates, but nor has it ever had negative double-digit growth as in Zimbabwe," write Dehejia and Subramanya.

Vivek Kaul is a writer. He can be reached at vivek.kaul@gmail.com

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Updated Date: Dec 20, 2014 14:26:55 IST